Avanco Resources Ltd (AVB)

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1 Price Volume (in millions) D.J. Carmichael Pty Limited ABN Australian Financial Services Licence No: Level 14, Parmelia House 191 St Georges Terrace, Perth, Western Australia 6000 PO Box Z5186, Perth, Western Australia 6831 T: +61 (0) F: +61 (0) Date: 17 November, 2017 Recommendation: Buy Avanco Resources Ltd (AVB) Valuation: $0.23 Company Information ASX Code AVB Last Price ($) $ month share low $ month share high $0.14 Shares on Issue (m) 2457m Market Capitalisation $216m Daily Volume 1.63m CapIQ, DJC Financial Summary a e e e Revenue (US$m) EBITDA (US$m) D&A (US$m) EB IT ( U S$m) Net Interest (US$m) 3.2 (1.0) (1.0) 7.5 Tax (US$m) U nd erlying N PA T ( 2.7) R ep o rt ed N PA T ( $m) ( 2.7) EPS (US ) na EPS Growth (%) na na DPS (A ) Cash ($m) Net Debt ($m) (0.0) Net Debt/Equity (%) 14.5% -5.2% -0.8% 72.9% P/E (x) na EV/EBITDA (x) Initiation of Coverage Avanco Resources Limited (ASX:AVB) is an ASX-listed junior copper and gold producer and developer focused on projects in northern Brazil. Two projects, the operating Antas copper-gold mine and the Pedra Branca copper-gold development project, are within the Carajás Region in Pará State, famous for its world-class IOCG copper and iron ore deposits. The third project, CentroGold, is in the neighbouring state of Maranhão. AVB successfully developed the Antas mine under-budget and within schedule, displaying considerable in-country project development expertise. Development of the CentroGold project and Pedra Branca would provide a first-phase production profile of 40,000 tonnes of copper and 140,000 ounces of gold. We believe AVB has one of the strongest production growth profiles of any junior copper producer on the ASX, is currently generating positive operational cash flow and is significantly undervalued. We place a Buy recommendation on AVB with a price target of $0.23 per share. KEY POINTS Capable Management: DJC attended a site visit at AVB s operations in Brazil mid-year. One of the key learnings that came out of our site visit was AVB s demonstrated capability to successfully operate in Brazil, a jurisdiction where some other ASX-listed juniors have struggled. We are confident that AVB will bring the same level of expertise to the development of its other opportunities in Brazil. Antas production: Antas is AVB s producing asset. We envisage continued copper production at circa 14,000 payable tonnes as the pit deepens with cash costs of $1.06/lb after gold credits and an AISC down to $1.56/lb resulting in EBITDA margins of up to 51%. 12 Month Performance CentroGold before Pedra Branca: AVB embarked on an accelerated acquisition and development program for its CentroGold Project. We believe the considerable value proposition provided by CentroGold will elevate CentroGold over Pedra Branca to be the second project brought into production. We estimate production of circa 100Kozs per annum at an AISC of approximately US$850 per oz. Upside from exploration and acquisition: AVB has ample opportunity to expand production at Antas. Recent exploration success proximal to the mine could materially lift production in our view. AVB has already estimated that production capacity could double by expending circa US$20m in capex on the Antas plant. Exploration success is also expected at Pedra Branca where the ore body is open along strike and down dip /16 2/17 5/17 8/17 Volume Price Analyst Details Paul Adams padams@djcarmichael.com.au Source: Capital IQ 5 0 Strong growth profile: We believe AVB has one of the strongest production growth profiles of any junior copper producer on the ASX by virtue of the projects it already has in its portfolio. A scoping study on CentroGold is expected in the coming months and an optimised DFS on Pedra Branca is expected in Recommendation: We place a Buy recommendation on AVB and a valuation of $0.23 per share, assuming development of CentroGold and Pedra Branca. DJ Carmichael Pty Limited ABN AFSL Telephone: info@djcarmichael.com.au Webpage:

2 Avanco Resources Ltd Shares on Issue (m) 2,457 Date Fully Diluted (m) 2,649 Share Price: Market Capitalisation ($m) Valuation: Diluted Market Capitalisation ($m) Price Target: 7/11/2017 $0.09/share $0.23/share $0.23/share Equity Valuation, Return A$m A$/share Income Statement (US$m) 2016a 2017e 2018e 2019e Antas Mine Sales Revenue Pedra Branca Project Operating Costs Centro Gold Project Exploration Net Cash/(Debt) Other Unpaid Capital EBITDA Corproate Costs (0.01) Depreciation & Amort Total EBIT Finance costs Financial Ratios Profit Before Tax Key Metrics 2016a 2017e 2018e 2019e Income Tax Expense Revenue Growth na 66% 8% 45% Underlying NPAT EBIT Growth (Adj) 317% 71% 109% 136% Non-recurrent items NPAT Growth (Adj) na na 192% 133% Reported NPAT EBITDA Margin (Adj) 32% 26% 29% 37% Normalised Earnings EBIT Margin (Adj) 9% 9% 17% 28% EPS - Reported (cps) Cash Flow Statement (US$m) 2016a 2017e 2018e 2019e EPS Growth na na 175% 130% Net operating cash flow Net interest (7.5) Earnings Multiples (A$) 2016a 2017e 2018e 2019e Tax Paid 0.0 (5.7) (8.7) (10.9) P/E (x) na Operating Cash Flow EV/EBIT na Capital Expenditure EV/EBITDA na Exploration & Eval Other Balance Sheet 2016a 2017e 2018e 2019e Investing Cash fflow Gearing (Debt/Equity) 0.4% 0.2% 0.2% 0.9% Free Cash Flow (10.6) 7.2 (5.0) (111.6) Gearing (Net Debt/Equity) 0.1% (0.1)% (0.0)% 0.7% Equity Raised EBIT Interest Cover (x) 1.3x na na 4.8x Inc/(Dec) in Borrowings ROE na na 0.0% 0.1% Dividends Paid Other 2.4 (4.0) (4.0) 0.0 Dividends 2016a 2017e 2018e 2019e Financing Cash Flow 2.4 (4.0) (4.0) Dividend Per Share Effects of Exchange Rates Movement in Net Cash (8.2) 3.2 (9.0) (2.6) Resources Mt Cu (%) Au (g/t) Cu (KT) Copper Balance Sheet (US$m) 2016a 2017e 2018e 2019e Antas North Cash Antas South Other Pedra Branca East Current Assets Pedra Branca West PP&E Total Copper Resources Exploration & Eval Resources Mt Au (g/t) Au (Moz) Other Gold Total Assets CentroGold Current Liabilities Borrowings Reserves Mt Cu (%) Au (g/t) Cu (KT) Other Liabilities Antas Mine Total Liabilities Total Shareholders' Equity Directors Institutional Shareholders Vern Tidy Non-Exec Chair Appian 18% Valuation assumptions Tony Polglase Managing Dir Greenstone 17% Simon Mottram Exec Director Blackrock 13% Gold US$/oz 1,250 1,275 1,300 1,300 1,300 1,250 Luis Azevedo Exec Director Glencore 8% Copper US$/lb Luiz Ferraz Non-Exec Dir AUD:USD Paul Chapman Non-Exec Dir Company Production Estimate AVB group copper production AVB group gold production 45, ,000 Cu produciton (tonnes) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Au produciton (Ounces) 140, , ,000 80,000 60,000 40,000 20, Antas Mine Pedro Branca Project Antas Mine Pedro Branca Project Centro Gold Project 2 17 November 2017

3 Toones Cu production ('000) Flash Not Investment Thesis AVB is an ASX-quoted, Brazilian-focused copper and gold producer. AVB brought their first operation, Antas, into production under budget and under-schedule, without project debt finance, by a largely Brazilian-based team. AVB owns (100%) and operates the Antas Copper-Gold mine located in the world-famous Carajás Region of Pará State in Northern Brazil. Antas has a modest production profile with 2017 copper production expected at 14,000 tonnes of copper in concentrate. Although small, Antas is an impressive mine. Well planned, well executed and importantly, quickly operating at nameplate, with several areas achieving in excess of design capacity. In our view, Antas serves as a capability statement allowing AVB to develop in-country relationships and expertise and to form a development template for its other, more substantial development opportunities in the region. Whilst on our site visit, we were impressed to see so few expat employees. In addition, senior technical and project management personnel spend most of their time in Brazil. AVB believe the local employee first approach has been a major determining factor in the company s in-country success. This is a view we share. AVB is likely to develop two further projects between now and We believe the first is likely to be CentroGold with an estimated 100Koz production profile over a 10 year mine life (with potential extension). The second is the Pedra Branca underground copper-gold operation located within 50km of Antas, which will take group copper production to 40,000 tonnes and potentially to 50,000 tonnes when combined with expansions at Antas and development of a second orebody at Pedra Branca.. ASX-Listed copper production This production rate would place AVB third only to Oz Minerals (current production of 116,000 tonnes), and Sandfire Resources (current production of 67,000 tonnes), whilst simultaneously producing up to 140,000 ozs per annum of gold FND AVB SFR OZL Current ops PB We believe AVB has one of the strongest production growth profiles of any junior copper production/development company on the ASX with the benefit of an in-country development team, with demonstrated capability, and the potential for further growth through acquisition to lever its already existing processing infrastructure AVB are growing cash on the balance sheet from Antas. Our modelling suggests that existing cash, operational cashflow and project debt financing will provide the necessary funding to develop both CentroGold and Pedra Branca without having to tap equity markets for additional capital, at current commodity prices. Our modelling indicates that AVB is significantly undervalued, especially when taking into account the considerable value creation opportunity provided by the CentroGold Project. We take the view that the market has not fully appreciated the potential contribution that CentroGold will make to AVB cashflows and valuation. We accept that the metrics of the CentroGold project could change from our modelling assumptions once the scoping study is released, but with the information at hand and all things being equal, we believe that CentroGold will add significant value to AVB We value AVB at A$602.8m or $0.23 per share on a diluted basis after conversion of 192m options (first tranche Jun-2018) to shares November 2017

4 Valuation We value AVB on a sum of parts valuation approach using a full LOM discounted cash flow methodology for each operation. CentroGold to be developed ahead of Pedra Branca We take the view that AVB will develop the CentroGold project ahead of Pedra Branca. AVB s recently announced accelerated development strategy of CentroGold now puts this project firmly on the development agenda for 2018/2019. However, our modelling assumes the development of each will overlap slightly through CY Whilst metrics of the CentroGold Project will differ somewhat to our model, given the potential to re-cut the resource and to incorporate higher grade zones early in the mine schedule, we believe that leaving out the CentroGold DCF-based valuation at this stage would not give enough weight to the potential value that this project brings to AVB. Avanco Resources Ltd Sum-of-Parts Valuation D.R. (%) US$m USDAUD A$m A$/sh Antas Mine 7.5% Pedra Branca Project 9.0% Centro Gold Project 10.0% Net Cash/(Debt) Unpaid Capital Corproate Costs Total Figure 1. Sum-of-Parts valuation for AVB Source: DJC estimates We used different discount rates for each project reflecting our view of risk. The Antas operation is already operating and performing well and we therefore apply the lowest discount rate of the three. Conversely, the Centro Gold Project is at an earlier stage, is within a neighbouring state and metrics could change. Pedra Branca is close to Antas and can lever off existing local infrastructure and, if need be, can utilise the existing plant at Antas should the processing plant on-site be delayed. Intput assumptions - Commodity price and FX rate LT Gold US$/oz Copper US$/lb AUD:USD Figure 2. Headline input assumptions Source: DJC Estimates / consensus data CapIQ Sensitivity analysis suggests that the project financials are most sensitive to commodity prices. A 10% change to the major commodities in each project increases the combined project NPV by 33%. Figure 3. Sensitivity to commodity prices Source: DJC 4 17 November 2017

5 Cu produciton (tonnes) Au produciton (Ounces) Flash Not Assumptions used in each of the project models are tabulated in the respective sections of the report. AVB group copper production AVB group gold production 45, ,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, , , ,000 80,000 60,000 40,000 20, Antas Mine Pedro Branca Project Antas Mine Pedro Branca Project Centro Gold Project Figure 4. Forecast AVB group consolidated copper and gold production Source: DJC We forecast group copper production reaching a maximum of 40,000 tonnes in 2021 as Pedra Branca has its first full year of production and Antas continues to provide circa 14,000 tonnes towards the end of its scheduled LOM. Antas plant can be doubled in production capacity by a modest capex expenditure of US$20m With little capital, the processing plant at Antas could be upgraded with the potential to increase Antas copper production to circa 24,000 tonnes to result in group production close to 50,000 tonnes. We have not included this scenario in our model at this stage. In our view, additional ore could come from Antas south or other satellite projects or acquisitions proximal to the Antas plant. Group gold production continues to climb until 2021 to a maximum of circa 140,000 ounces after two full operating years of CentroGold plus continued gold production from both Antas and Pedra Branca. Figure 5. AVB forecast group capex and cash flow Source: DJC estimates We estimate that AVB will have a maximum capex requirement of circa US$140m in 2019 as CentroGold, followed by Pedra Branca, will be in development. Group cashflow will reach a maximum negative value of US$100m in 2019 with the high capital spend but recover quickly to be cashflow positive by 2020 before rising to a maximum of US$156m in 2021 as Pedra Branca is completed and positive operational cashflow comes from all three projects. Capex requirement of US$18m in 2021 and onwards mainly comes from the mine development for Pedra Branca November 2017

6 If current commodity prices hold, AVB may be able to develop both CentroGold and Pedra Branca without going back to equity markets We model that AVB will use debt, existing cash and cashflow from operations to fund the development of CentroGold and Pedra Branca, without the need to raise additional equity. As current copper and gold prices are higher than modelled, we believe operational cashflow will be sufficient to provide the funding requirements. Avanco Resources Limited Cash Flow 2015a 2016a 2017e 2018e 2019e 2020e 2021e 2022e 2023e 2024e Operating Activities Net cash from customers Payments to suppliers (2.0) (39.9) Net interest paid Tax paid Net Operating Cash Flow Investing Activities Capital expenditure (14.1) (19.7) Exploration & evaluation (24.1) (3.2) Other Net Investing Cash Flow (38.3) (22.9) Free Cash Flow (36.5) (10.6) Financing Activities Net proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Dividends Other Net Financing Cash Flow Net Change in Cash Cash at end of period Free Cash Flow Figure 6. Cash flow forecast to 2024 Source; DJC estimates We therefore expect cash on the balance sheet to remain around current levels until 2019/2020 when cashflow from CentroGold will materially change AVB s earnings profile. We model the development of CentroGold with a 75:25 debt:equity ratio, with the equity portion being funded by project cashflows. Key Risks to Cash and Cashflow We see biggest risk around simultaneous development of CentroGold and Pedra Branca We see the period between 2019 and 2020 as the key risk period for AVB. The overlap of two project developments (CentroGold and Pedra Branca) could stretch project management resourcing and could put strain on the balance sheet if projects were delayed or mis-priced. Commodity pricing will also play a large part as this is the key sensitivity to cashflows. We model that cash will approach zero in 2019 should the copper price fall to circa $2.55 per pound. AVB would have to raise additional equity capital to ensure completion of the project build for Pedra Branca under this scenario. We estimate a US$20m to US$30m raise would be sufficient. In our view, however, AVB has in its control, various options if it needed to slow capex. For example, AVB could develop CentroGold first, followed by development of Pedra Branca once cashflow started to be generated from CentroGold. Alternatively, the staged approach of development at Pedra Branca, with the processing of early ore from the upper levels through the Antas plant for longer, could alleviate balance sheet pressure, although suffering higher opex costs November 2017

7 Corporate AVB runs the cash flow positive Antas Mine and as of end Sep Qtr had $28.5m in cash and no debt. AVB developed its Antas Mine without accessing project debt finance. This enabled AVB to commission and run Antas without debt covenants and therefore with reduced financial risk. The largest four institutional holders account for 56% of the register. BlackRock provided part of the funding for the development of Antas via US$12m royalty agreement that covers copper and gold production from both Antas and Pedra Branca. Corporate Snapshot Shares on Issue (m) 2,457 Options Week Range Current Share Price Market Capitalisation (A$m) Cash (A$m) 28.5 Debt (A$m) - Enterprise Value (A$m) Figure 7. Corporate Snapshot of AVB Source: Company data / CapIQ Figure Month AVB share price and volume chart Source: CapIQ 7 17 November 2017

8 Introduction Potential growth from current production of 14,000 tonnes of copper to 40,000 tonnes and potentially further, to 50,000 tonnes of copper AVB is an ASX-listed copper producer focused on projects in northern Brazil. The company currently produces 14,000 tonnes of copper per year but aims to grow this to 40,000 tonnes per annum, and potentially to 50,000 tonnes, over the coming few years. This is to be achieved through development of the Pedra Branca project and by expanding its existing operations at Antas, both in the Carajás Mineral Province within the State of Pará, famous for its large IOCGrelated copper and iron ore deposits. In addition, AVB has completed an accelerated acquisition and development program on its CentroGold Project in the neighbouring State of Maranhão, where there is potential to develop a stand-alone gold operation producing circa 100Kozs per year over a 10-year life-of-mine. Figure 9. Location map of AVB s projects, northern brazil Source: AVB Avanco Project Summary Antas Pedra Branca CentroGold Ownership 1 100% 100% 100% State Para Para Maranhao Mine Type Open Pit Underground Open Pit Estimated Mine Life 5 Yrs 11 Yrs 10 Yrs Primary Commodity Copper Copper Gold Current Production Cu 14Kt Current Production Au 10Kozs Anticpated production Cu 24Kt Anticpated production Au 16Kozs 100Kozs 1. Assumes 100% ow nership of CentroGold Figure 10. AVB Project Summary table Source: AVB/DJC If AVB can bring the same attention to detail in the planning phase and execute project development with the same expertise it applied to Antas, we are confident that AVB can bring both projects to fruition November 2017

9 Antas Copper-Gold Operation Antas is AVB s operating asset in the Carajás and is located within the Rio Verde license. It is the world 5 th highest grade open pit copper mine. Antas was discovered in 2011 and had a maiden JORC resource in A mining license was awarded in 2014 and construction started in Proved and Probable reserves at the time of commissioning was 3.63Mt at 2.53% copper and 0.55g/t gold. Major institutions account for over 50% of the issued capital The project finance was obtained through equity raisings and supported by institutional investors Blackrock World Mining Trust, Appian Natural Resources Fund, Greenstone Resources and Glencore. These four major shareholders held 53% of the total AVB share register at the time of commissioning. Although the equity financing route ballooned the capital structure, it did allow for a lower financing risk strategy with the project being debt and covenant-free at start-up. The equity raising finance route also circumvented the difficulty in arranging project debt financing during 2014 at the bottom of the resource cycle. Mining equity financing raised a total of A$63.62m (c.us$50m) supported by a US$12m royalty agreement with BlackRock. The May 2015 capex estimate for Antas was US$60m. AVB commissioned the mine on time and under budget at US$56m. Geology The Antas deposits are located in the southern part of the Amazon Craton in one of the world s best known IOCG (iron oxide-copper-gold) provinces (Carajás Mineral Province, or CMP), host to the largest iron ore mine in the world and several world class copper projects. The northern part of this tectonic block contains metavolcanic-sedimentary units of the Rio Novo Group and the Itacaiunas Supergroup which overlie the basement rocks. The rocks of the Itacaiunas Supergroup host all of the Carajás IOCG deposits. (e.g., Sossego, Salobo, Igarapé Bahia-Alemão, Cristalino, Gameleira, Tarzan and 118). Development of the Itacaiunas Shear Zone and the Cinzento and Carajas fault systems are responsible for the metamorphism and deformation in the Supergroup. These rocks have also been intruded by granites, mafic-ultramafic layered intrusions and gabbroic dykes and sills. The fault systems provided the plumbing for ascending granitic intrusives and the mineralised fluids. Figure 11. Regional geology and plan of Antas North pit scale geology Source: AVB 9 17 November 2017

10 The Antas orebody is located close to the southern edge of the Estrela Granite Complex and is hosted predominantly by mafic metavolcanic rocks, cut by gabbroic dykes. Copper mineralisation, mainly in the form of massive and disseminated sulphide as chalcopyrite dominant, and is concentrated in a steeply dipping zone, within a matrix of hydrothermal breccia. Figure 12. Long section and cross section through Antas North Source: AVB Figure 13. Examples of the massive sulphide copper mineralisation in the Stage 2 Pit floor, Antas North Source: DJC Mining Mining commenced at Antas North in August 2015 with first concentrate metal production in March Antas has a current mine-life to 2021, without further reserves being added. The mine is high grade at 2.4% copper, has a relatively low overall strip ratio at 6.4:1 and is designed to produce an average of between 12,000 and 14,000 tonnes of copper and approximately 7,000 ounces of gold per annum over the initial 7-year mine life. The mine consists of a 3-Stage open pit with final dimensions of 650m by 350m and to a depth of 250m. Stage 1 is complete and AVB is currently stripping and producing from Stage 2 (55% November 2017

11 complete). Stage 3 strip is currently 18% complete with smaller mining equipment being used to pre-strip the edges of the pit where the topography is challenging. Stage 3 Stage 1 Stage 2 Figure 14. Three stages of the Antas North Open Pit Source: DJC Mine performance by Quarter Mining is a standard drill-blast-haul operation. Grade control drilling is performed on a 5m x 10m spacing with samples taken every 1m, to a drill depth of 30m. Infill drilling every third hole on a 15m by 10m spacing to 50m is used to inform mine planning. Ore and waste is blasted separately to reduce in-pit mining dilution. Blasting occurs on 5m benches with mining conducted on 2.5m flitches, again to reduce dilution. Ore monitoring is conducted by in-pit visual control with surveyed ore boundary mark-ups defined by both grade control (RC) drilling, blast-hole drilling and geology models. Reconciliations for copper between mined grade and reserve model grade are within 10%. There is a positive call in the gold reconciliation as gold grades are higher from zones adjacent to the copper mineralisation. Recent diamond drilling of the gold zone has been undertaken to reduce the difference between the modelled and mined gold grade. AVB has elected to use a mining contractor (MACA) at Antas North who undertake pit supervision, load and haul, production drilling and mechanical maintenance on their mobile fleet, which consists of 120t excavators loading 7 x Volvo A40F trucks, supported with ancillary equipment of 2 x CAT D9 dozers, front-end loaders, graders, water carts and service vehicles. MACA operate on a three shift per day roster, 24 hours per day. Processing The Antas processing plant was completed on schedule and under budget through careful project management and the sourcing of second-hand equipment. This, in some cases, halved equipment cost and reduced lead times for critical components. The plant is a conventional crush-grind-float-filter process. Two stage crushing leads to the grinding (80tph, p80 at 106 microns) circuit thence through a rougher-cleaner-thickener circuit to the flotation cells. Filter pressing of the resultant concentrate provides dry con to be trucked and finally barged to an export facility at the port at Vila do Conde. Concentrate is shipped in containers from site reducing re-handling and warehousing costs Second hand equipment included the ball mill (unused), float circuit filter feed tank, concentrate buildings, sump pumps and air receivers. Much of the plant was AVB designed using specialist November 2017

12 Brazilian OEMS producing transportable plug-and-go components, which reduced commission time. Installation was performed by local contractors which established excellent community relations early in the project life. We were impressed with the design and function of the Antas processing plant whilst on our site visit. We have never seen a plant get commissioned so quickly and with so few teething problems Commissioning time for the plant was remarkably short 2 weeks, instead of the normal 3 to 6 months. Since then, the plant has over-performed on design and further optimisation is ongoing. Current enhancements include crushing plant automation and dust suppression and crushing screens. Throughput capacity is currently running at circa 100tph (+20%). Copper recovery in the latest quarter is running at 98% (+2%) and gold recovery at 84%. Annual copper production is running +17% on initial design capacity. Figure 15. Plant performance and metal production by Quarter since commissioning Source: AVB Metal production for the September Q (Q3) exceeded annualised guidance. AVB are confident that the yearly guidance of between 13,500 and 14,000 of copper production will be attained. YTD production costs are averaging US$1.51/lb and yearly AISCC averages US$1.83. Gold credits are averaging US$0.43/lb. The costs quoted above are after gold credits. Concentrate grades average 28% copper and 7g/t gold. The concentrates are very clean and command a high sales price and some of the lowest treatment and refining costs in the industry. Concentrates also include approximately 28g/t silver. Payment for concentrates occurs at the port of departure, not the arrival port. This means a shorter time to cashflow from concentrate shipments November 2017

13 Antas Mill has been designed with expansion in mind We were impressed with the design of the plant whilst on our site visit. The Antas Mill was designed to make capacity expansion easy and was designed with the operator in mind. AVB estimate that the capacity of the processing plant can be doubled for a modest US$20m in capex. The plant layout was also designed so that additional components could be located alongside existing units. A modular approach to the design was considered at the outset of the design process to make a capacity upgrade easy. Antas Growth Opportunities The Antas North copper mineralisation extends below the designed pit floor. AVB completed a 5,000m drill program during the September Q at Antas North to improve the confidence in existing probable reserves deeper in the pit and to extend resources. Resource modelling of this drilling is now in progress. An upgrade in JORC resources is expected before year end. Best assay results from that program include: 2.31% copper and 0.99g/t gold from 108m 2.52% copper and 0.57g/t gold from 263m 7.65% copper and 4.13g/t gold from 71.8m AVB currently quote remaining resources below the pit floor of 1.9Mt at 2.16% copper and 0.45g/t gold for a contained 41,000 tonnes of copper and 27,000 ozs of gold. The resource is currently open at depth. Further drilling down dip of the current resource extent could provide potential to open an underground mine at Antas. AVB will undertake a trade-off study once the new resource is estimated, looking at the benefits of a larger open pit vs an underground development. This will require more drilling to further define UG resources to determine the best outcome. Current pit design outline Figure 16. Remaining resource below the Antas North Pit Source: AVB/DJC The next largest opportunity is at Antas South, where a JORC resource of 10.1Mt at 0.83% copper and 0.2g/t gold containing 85,000 tonnes of copper metal and 65,000 ozs of gold November 2017

14 Figure 17. Antas South Deposit model Source: AVB In addition, AVB has several targets on the Rio Verde License that require follow up drill testing. These include the Lazinho, Paulinho and Clovis targets and the near-mine Azevedo Prospect, all within 5km of the Antas processing plant. Figure 18. Exploration opportunities within the Rio Verde License Source: AVB November 2017

15 Antas Financial Model Key assumptions: We have developed our Antas LOM model out to CY2022 and assume a total mill feed of 3.67Mt, allowing for an additional year past the existing ore reserve. We believe there is a reasonable likelihood of proximal exploration success in finding an additional year of feed as evidenced in the recent exploration results close to the Antas North open pit. Antas production and cost assumptions (US$) 5-year LOM from 2018 Total ore mined of 3.67Mt Average copper grade of 2.4% from 2018, based on reserve grade x 93% for the current reserve to production reconciliation Average gold grade of 0.55g/t from 2018 Concentrate grade of 28% copper and 7.0 g/t gold Average copper recovery of 95% Average gold recovery of 84% Average concentrate production of 59.8Ktpa Average payable copper production of 14,000 tonnes copper Average C1 OPEX costs of $1.03/lb copper o Treatment and refining charges of $0.20/lb copper o Freight and logistics charges of $0.25/lb copper o Average mining costs of $0.93/lb ore o Average processing cost of $0.33/lb o G&A costs of $0.10/lb Average AISC from 2018 of $1.61/lb Average EBITDA Margin from 2018 of 46.1% Average EBIT Margin from 2018 of 38% Total sustaining capex to end of LOM $10.6m, averaging $2.65m per year with no sustaining capex in final year Figure 19. Financial model assumptions for Antas North Source: DJC We forecast slightly higher copper production than currently experienced through additional ore as a result of slightly higher copper grades. Throughput averages 734Kt per annum, equating to 83tph on a 24/7 basis. However, we know that the mill can be run at higher rates and AVB may decide to run at an increased rate as less waste is removed and strip ratios decline in Antas North. Although AVB are applying for a license to increase the production rate at Antas, we have left our production rate at 14,000tpa pending confirmation of additional ore sources for the Antas mill AVB are also to apply for a license to expand production at Antas. At this stage, we maintain copper production at c. 14,000 per year in our model, but are ready to increase this if AVB discover other ore sources proximal to the mine. We also forecast some additional production from other sources i.e. from Antas South or other near-mine ore sources such as Azevedo. In addition, AVB had previously suggested a progressive development strategy for Pedra Branca, whereby a starter operation at PB could utilise the existing plant at Antas to treat early development and production ore from underground. This is still a possibility. If so, additional capacity at Antas would likely be taken by PB ore and would displace ore from other sources November 2017

16 Gold Price (US$/Oz) 1,250 1,275 1,300 1,300 1,300 1,250 Copper price (US$/t) 6,174 6,395 6,615 6,615 6,725 6,174 Figure 20. Financial modelling of Antas North key assumptions and metrics Source: DJC November 2017

17 Pedra Branca (PB) Development Project Pedra Branca is AVB s second copper project in the Carajas and is located some 40km south of Antas and approximately 70 km by road. There is access to water, power and transport infrastructure, via a road constructed by Vale to access their S11D iron ore mine. Figure 21. Location of AVB copper projects in the Carajas Source: AVB The project is composed of two zones - Pedra Branca East (PBE) and Pedra Branca West (PBW). AVB released a positive Pre-Feasibility Study (PFS) on PBE in May 2017, which demonstrated a viable, stand-alone, underground operation based on the PBE deposit. PBW is still subject to further exploration and investigation. PBE will be a larger mine than Antas in terms of production. A phased development approach would produce 24,000 tonnes of copper and 16,000 ounces of gold, bringing annual group copper production to circa 40,000 tonnes. DFS now underway for Pedra Branca. Opportunities to optimise the mining schedule and increase the resource base are present A Definitive Feasibility Study (DFS) is now underway with several opportunities identified to optimise development, including changes to timing of component builds, sourcing of second-hand equipment, plant sizing and other potential cost saving measures such as the optimisation of underground development ramp-up and sequencing. Target completion date on the DFS is May At this stage, AVB anticipate first production by mid A box-cut and portal has already been established and a trial mining license was issued in August A full environmental license application was submitted in June 2017 and approval is anticipated in 2H Geology PB lies within the Pedra Blanca Shear system. The PBE mineralisation occurs as a tabular body striking EW, dipping south and plunging to the SE within an anastomosing shear in close contact between a granite and a diorite. Alteration is typical of IOCG deposits with potassic alteration as k-feldspar occurring without sulphide mineralisation. Mafic alteration consists of amphibole (mostly actinolite), biotite, apatite and albite containing sulphide as chalcopyrite, pyrite and minor pyrrhotite. In simple terms, if there is no mafic alteration, there is no mineralisation November 2017

18 Breccia zones occur at the contact zone between the potassic alteration and the mafic alteration, often where the rock is milled and silicified. The breccia is replaced by mafic alteration and sulphides and attenuated in dilation zones within the shear. Structural thickening in dilation zones results in a cigar-shaped plunging shoot at 30-35º up to 40-50m wide in places. The mineralisation averages 7m in true width across the whole deposit. Figure 22. Long section of PB (grade x thickness contours) Source: AVB Mafic alteration (Amp+Mag-Apatite-Sulphide) overprinting Potassic alteration Potassic Alteration (K-feldspar) Figure 23. Potassic and mafic alteration with associated copper mineralisation Source: AVB November 2017

19 PFS outcomes The PBE PFS was based on an independently estimated (CSA Global) resource of 10.48Mt at 2.8% copper and 0.7 g/t gold for a total contained 289,000 tonnes of copper metal and 221,000 ozs of gold. Cut-off grades employed were 0.2% Cu for the disseminated mineralisation and 1.0% Cu for the high-grade domain. The high-grade part of the ore-body averages 15m in width. The estimation method used was ordinary kriging (OK) and a true cut-off-grade (COG) was established at 1.2% Cu. Sub-level open stoping, with delayed filling, was the chosen method of extraction after studies showed that an open pit resulted in low mining recoveries and a high strip ratio. The competent wall rocks, low water inflow and steeply dipping ore-body lend themselves to UG extraction on 30m sublevel intervals (sill to sill). Backfill will employ cemented paste fill from a surface plant via a series of boreholes and filled to 5m from the top of the stope. The remaining cavity will be used as UG infrastructure. Figure 24. Pedra Branca East and West mine design at PFS level Source: AVB Key assumptions and outcomes included: November 2017

20 Key assumptions and outcomes cont Project implementation capex was estimated at US$158m based on maximum negative cashflow while total capital over the LOM was estimated at US$273m. Plant and surface infrastructure was estimated at US$103m. These estimates included a contingency of 20%. Figure 25. PB PFS Capex schedule and cashflows Source: AVB / DJC The main conclusions from the Pedra Branca PFS were: A 1.2Mtpa operation producing 24,000 tonnes of copper and 16,000 ounces of gold per annum An NPV estimate of $200m and an IRR of 34% assuming a copper price of US$2.65- US$2.95/lb Estimated LOM (Life-of-mine) cashflow of US$368m Pre-production capex of US$158m Estimated C1 cash costs of US$$1.30/lb. NPV is most sensitive to the copper price. Pedra Branca Growth Opportunities AVB has recognised the potential for more mineralisation at PBE to the east and down plunge of the existing resource envelope. Drilling in August confirmed that the PBE orebody extends to the east along strike. The first hole of a 5000m program intersected the PBE orebody 70m further east than the previous hole and recorded an approximate 24m downhole wide mineralised zone, within which, a high-grade zone of semi-massive and breccia-style mineralisation included 2.39% copper and 0.62g/t gold from m November 2017

21 Figure 26. Recent drill intersection down plunge and east of ore envelope Source: AVB Continued exploration of Pedra Branca West also has the potential to realise further resource tonnes and potential mill feed for a combined operation. Early studies by AVB indicated that UG ore at PBW could be accessed via 300m drive from the PBE. Pedra Branca Financial Model Key assumptions: We assume early production in 2H 2020 and run a LOM plan for a further 11 years to We use an average LOM production rate of 1.124Mt but run at 1.2Mtpa at steady state after 2021 and have assumed that mine production in 2020 could utilise additional processing capacity at Antas if the processing plant on site at PB was not yet complete. We have essentially used the metrics from the recently completed PB PFS study (May 2017). Pedra Branca production and cost assumptions (US$) 11.5-year LOM from 2020 Total ore mined of 12.89Mt (slightly higher than in the PFS) Average copper grade of 2.04% from 2020 Average gold grade of 0.49 g/t from 2020 Concentrate grade of 28% copper and 7.0 g/t gold Average copper recovery of 95% Average gold recovery of 86%, 2% better than Antas Average concentrate production of 83.8Ktpa Average payable copper production of 22.6Kt Average gold production of 16.2Kozs per annum Average C1 OPEX costs of $1.47/lb copper o Treatment charges of $73.5/t copper concentrate o Refining charge of $0.074/lb copper and $4.00/oz gold o Freight and logistics charges of $150/t copper concentrate o Average mining costs of $29.3/t ore o Average processing cost of $15.25/t ore o G&A costs of $3.20/t ore November 2017

22 Average AISC from 2021 of $1.89/lb Tax at 34% Average EBITDA Margin from 2020 of 49.9% Average EBIT Margin from 2020 of 33% Total sustaining capex to end of LOM $81.8m, averaging $9.1m per year Figure 27. Financial model assumptions for Pedra Branca Source: DJC Copper Price (US$/t) - - 6,615 6,725 6,174 6,174 6,174 6,174 Gold Pri$/oz) - - 1,300 1,300 1,250 1,250 1,250 1,250 Figure 28. Financial modelling of Pedra Branca key assumptions and metrics Source: DJC Est November 2017

23 CentroGold Project (100%) The CentroGold Project (CG) is located in the neighbouring state of Maranhão, some 600km from ABV s Carajas copper projects and 26km from the town of Centro Novo. It is located close to road, power and water infrastructure and access is via sealed road and dirt tracks. A skilled labour force resides nearby. The project was once worked by Kinross, then sold to Jaguar Mining, and since September this year, know owned by Avanco (see below). Figure 29. Location of the CentroGold Project Source: AVB The project consists of 140,000Ha of contiguous tenements along a 75km strike length of underexplored greenstone belt. CG is an advanced stage project with extensive drilling, metallurgy, geotechnical and mining studies completed by previous owners. AVB recently announced an accelerated transaction schedule for the CG project to realise value sooner than in the original agreement. The new schedule comprises: $4.0m for 100% control and ownership via o $2.0m on signing; and o $2.0m on the transfer of title (Q4, 2017, complete) $5.0m in 10 x $500k monthly instalments after permitting issues are resolved. NSR payable on gold production to Jaguar of up to: 1% on first 500Kozs 2% between 500Kozs and 1.5Mozs 1% over 1.5Mozs AVB to assume historical third party NSR payment amounting to 1.75% Historical studies focused on a low-grade, high-tonnage mining proposition. AVB has recognised the potential to re-cut the resource estimate and focus on a lower tonnage but higher-grade development option, being a less capital-intensive option with a shorter development schedule November 2017

24 Two deposits make up the CG project Cipoeiro and Chega Tudo. AVB will focus on the Cipoeiro deposit initially which is itself composed of two zones Contact Zone and Blanket Zone. The deposit is hosted in and around a large tonalite intrusion with gold mineralisation associated with pyrite and quartz-sericite alteration. Total resources for the Cipoeiro Deposit are: A 5,000m infill drilling at Cipoeiro is currently underway involving three rigs. The primary aim is to upgrade inferred resources in the Contact Zone to Indicated and aim to have these scheduled early into the mining sequence. Figure 30. Cipoeiro Deposit cross sections and level projection Source: AVB New Resource model On 13 November, AVB announced an updated JORC resource for the CentroGold Project which included a maiden resource estimate for the Chega Tudo deposit. As a result, the combined Mineral Resource Estimate for CG increased by 45% to 31.5Mt at 1.8g/t gold, hosting 1.86 million ounces. The maiden JORC resource for Chega Tudo was estimated at 11.3 million tonnes at 1.6g/t gold for 577,000 ounces November 2017

25 Advancing studies towards PFS at CG A successful development of CentroGold would have a significant effect on the value of AVB, in our view AVB are making rapid progress with the CG project. The current infill program will support a Scoping Study, due in the coming months, that envisages a development from an open pit mine with low strip ratios on free-milling ore processed through a standard CIL processing plant on site. Now that the maiden resource at Chega Tudo has been completed the Scoping Study and subsequent PFS will include the new resource. A PFS/DFS is to take place in 1H2018. Based on current resources, AVB are targeting a 10-year LOM producing circa 100Kozs per year, with first production 2H Historical testwork indicates leach recoveries of between 84% and 97%. Figure 31. Advanced exploration targets on tenements at CentroGold Project Source: AVB Once the permit resolution is settled AVB anticipate the lifting of an environmental license injunction, the subsequent granting of mining leases and a re-issuance of the construction license. There are numerous advanced exploration targets on the tenement holdings: Centro Gold Financial Model Key assumptions: We have based our key assumptions around a 10-year LOM producing circa 100,00 ozs per year Using a grade of 2.0 g/t gold, a 2Mtpa processing plant would produce circa 110,000 ozs per year at a recovery of 90%. We anticipate production from CG late in 2019 and allow for 1Q of production as a commissioning stage in CY2019 before ramping up towards full production in 2H November 2017

26 CentroGold production and cost assumptions (US$) 10-year LOM from 2019 Total ore mined of 3.67Mt Average gold grade of 1.90 g/t Average gold recovery of 90% Average gold production of 101,000 per year Average C1 OPEX costs of $748/oz o Average mining costs of $20/t ore o Average processing cost of $16/t ore processed o G&A costs of $5.00/t ore processed o Royalties of 3% include new gold royalty and 1% NSR to Jaguar Average AISC of $908/oz Average EBITDA Margin of 37% Average EBIT Margin of 28% Total sustaining capex to end of LOM $27.0m, averaging $2. 5m per year Assumed capex of $100m 75:25 debt:equity split Tax rate in state of Maranhão of 15% We employ a discount rate of 10% Figure 32. Financial model assumptions for Antas North Source: DJC Figure 33. Financial modelling of CentroGold key assumptions and metrics Source: DJC Estimates November 2017

27 Resource and Reserve Tables Carajas Copper Resources Antas Copper Reserves CentroGold Resources November 2017

28 Board MR VERN TIDY - INTERIM INDEPENDENT NON-EXECUTIVE CHAIRMAN Mr Tidy joined Avanco in July 2015 as an Independent Non-Executive Director. Mr Tidy s skills encompass corporate governance, financial compliance and exceptional accounting, tax and audit knowledge. He is well known in the Australian resources sector, having formerly been the Senior Audit Partner at Ernst & Young where he led the mining and metals industry group. He has worked extensively with the largest multinationals to junior explorers, in Australia, South America, Asia and Africa for companies listed on the ASX, LSE and TSX. Mr Tidy has a BComm Business from the West Australian Institute of Technology. He is a qualified accountant, a Fellow of the Institute of Chartered Accountants in Australia and an Associate of the Australian Institute of Company Directors. MR TONY POLGLASE - MANAGING DIRECTOR Mr Polglase has been Managing Director of Avanco since the company was formed and listed on the ASX in December Mr Polglase started his career at the South Crofty Mine in Cornwall. Subsequently he studied a degree in metallurgy at the Camborne School of Mines, which helped launch his career internationally, working for over 40 years across different mining disciplines for companies including Ashanti, Rio Tinto, TVX and Invernia in Africa, Europe, the FSU and for the last decade in Brazil. Mr Polglase is recognised for his project management skills in the mining sector, notably critical evaluation, implementation and commissioning of mining projects. Mr Polglase has a BEng Metallurgy from the Camborne School of Mines. He is fluent in Portuguese and resident in Brazil. MR SIMON MOTTRAM - EXECUTIVE DIRECTOR Mr Mottram joined Avanco in January 2011 as Executive Director of Exploration. Mr Mottram is a geologist with over 20-years management and exploration experience in Australia, Asia and Brazil, predominantly in iron oxide copper gold and precious metals. Mr Mottram has been part of several significant exploration successes, and also seen a number of these discoveries advance through to commercial development. Indeed, Mr Mottram and his team are accredited for discovering Antas North, the deposit that is now the company s operating Antas Mine. Mr Mottram is an expert in the application of modern exploration techniques, large-scale drill programmes and feasibility studies. Mr Mottram has a BSc in Applied Geology from RMIT University and is a Fellow of the AusIMM. He is fluent in Portuguese and works in Brazil. MR LUIS AZEVEDO - EXECUTIVE DIRECTOR Mr Azevedo joined Avanco as a Non-Executive Director in December 2012, though he has been involved with the company since inception. He subsequently become an Executive Director with responsibility for Brazilian legal, licensing and regulatory matters. Recognised as one of the best lawyers in the Brazilian resource sector, he has a broad 35 years of experience across a range of companies and commodities. He has held senior positions at Western Mining, Barrick and Harsco, and presently runs a successful resource-focused, Brazilian-based legal and accounting firm. Mr Azevedo has a BSc in Geology from the University of Rio de Janeiro, and LL.B from the University of Candido Mendes and LL.M from the Pontifical Catholic University Rio de Janeiro. MR LUIZ FERRAZ - NON-EXECUTIVE DIRECTOR Mr Ferraz was appointed to the Board in July 2016 as an Independent Non-Executive Director. Mr Ferraz is a well-respected Brazilian businessman, with considerable experience and expertise in the Brazilian resources and finance sectors. He was formerly the CFO and subsequently CEO of Paranapanema, the largest copper smelter in Brazil, increasing production significantly. Consequently, Mr Ferraz is well known to Brazilian and international copper producers and commodity traders. Having held senior positions at Banco Bandeirantes, Mr Ferraz has a BA in Business Administration from Fundação Getúlio Vargas in São Paulo. He is currently a partner of Brasil Agro, a Sao Paulo based specialist agribusiness investment fund. He also sits on the board of a number of industrial companies November 2017